Trading blocs Flashcards
The expansion of trading blocs
Many businesses prefer to trade within their geographical region/ cheaper to transport goods to shorter distances
Many governments have signed regional trade agreements (RTAs)/ made between 2 or more countries within the same geographical region
RTAs often create trading blocs- group of coutries that have signed an RTAs agreement to reduce/ eliminate protectionist barriers between themselves
Trading blocs can take several forms:
Free trade area (FTA)- member states remove all trade barriers between themselves, but use different ones against non-member states
Customs union- where member states remove all trade barriers between themselves, and adopt a common set of barriers against non-members
Common market- goods/ labour/ capital can move freely across member states
Single market- most trade barriers between members have been removed and policies aim to make movement of goods/ labour/ capital easy
Economic union- involves both common market and customs union
The EU and the single market
Most powerful trading bloc in the world, founded in 1993
A single marketplace between the 27 members (excluding Switzerland, Iceland, Norway, Liechtenstein, the UK left in 2016)
Free movement of labour/ goods/ services/ capital between the member states
There’s a monetary union as 19 of the members have opted to use the euro (to stabilise currency)
However, 8 of the member states did not sign up for single currency and aren’t part of the monetary union
Most member states also remain culturally distinct/ different languages/ customs/ religions
ASEAN
Association of South East Asian Nations, established in 1967
Was to promote social and economic growth in the region
An agreement between: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.
Has negotiated free trade agreements amongst member states and other countries including China, New Zealand, Japan, Australia and India
Aims to become a common market- ASEAN Economic Community (AEC)
NAFTA
The North American Free Trade Agreement, implemented in 1994
To encourage free trade between Mexico, the USA and Canada, and providing consumers with cheaper goods
Members have agreed eliminate tariffs on most manufactured goods and treat investors from the other 2 countries as if they were domestic investors
They do not share a common external trade policies
As an FTA they don’t aspire the level of integration of EU
The impact of trading blocs on businesses
Opportunities
Allows individual members to specialise in areas their country already has advantages in
Trading blocs improve capital flows, make regulations more efficient, improve competition
Producers benefit from ecos/ lower costs/ lower prices
Resources are easier to source/ labour easier to recruit/ production and transportation costs continue to fall
Increases competition- leads to higher efficiency in the market
Provide counterbalance against globalisation/ protect industries in an area from predatory competitors from more economically powerful regions
Give regions the power to negotiate for better deals in the global market
Offers new potential markets for large successful firm, including the prospect if higher productivity and efficiency through larger factories/ lower overheads
The impact of trading blocs on businesses
Drawbacks
Trading blocks may harm overall trade- countries outside the region may have be better placed to specialise/ develop a competitive advantage in a product/ service, and yet are closed out of the market. Leads to trade diversion rather than trade creation
Inefficient producers may be protected from religion/ will not have to reform or compete/ may divert trade away from efficient producers and possibly harm consumers
An agreement a limit the goods/ services that are traded
Locally, some benefits may be unequally distributed, causing political and social tensions within the region
Globally, the benefits accrued inside the trading bloc may lead to tensions with other regions, and possible retaliation
Members of RTAs may have different levels of economic power, leading to long-term economic and political imbalance and potential conflict
For smaller companies this may result in more competition, and with larger firms
